United Rentals (URI)

Q2 2010 Earnings Call

July 21, 2010 11:01 am ET


Michael Kneeland - Chief Executive Officer, President, Director and Member of Strategy Committee

William Plummer - Chief Financial Officer and Executive Vice President


Philip Volpicelli - Goldman Sachs

Matt Leach

Henry Kirn - UBS Investment Bank

Seth Weber - RBC Capital Markets Corporation

Emily Shanks - Lehman Brothers

Christopher Doherty

Scott Schneeberger - Oppenheimer & Co. Inc.

David Wells - Avondale Partners



Good morning, and welcome to the United Rentals Second Quarter Investor Conference Call. [Operator Instructions] Before we begin, note that the company’s press release, comments made on today’s call and responses to your questions contain forward-looking statements. The company’s business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the Safe Harbor statement contained in the release. For a more complete description of these and other possible risks, please refer to the company’s annual report on Form 10-K for the year ended December 31, 2009, as well as the subsequent filings with the SEC. You can access these filings on the company’s website at www.ur.com.

Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. You should also note that today’s call will include references to free cash flow, adjusted EPS, EBITDA and adjusted EBITDA, each of which is a non-GAAP term.

Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer; and William Plummer, Chief Financial Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin.

Michael Kneeland

Thank you, operator. Good morning, everyone, and welcome. On the call with me today is Bill Plummer, our Chief Financial Officer and other members of our senior management team.

I want to start with a quick overview of the results we reported last night, and then focus on the metrics that indicate changes that are starting to take effect in our markets and within our company. I'll talk about the drivers of change, the seasonal, cyclical and our strategy in particular, and share some insights into what kind of demand we expect to see over the next six to 12 months. But still too early to speak in absolutes, but the second quarter did shed some light on the cycle

As you saw in our press release, we had a strong quarter. The environment is better. Our strategy is taking hold. We're more optimistic than we have been for some time, and we appear to be seeing the early stages of an upturn. And while we continue to bear down on cost, our focus is now on growing the business. So let's start with the results

We made money in the second quarter. Last year, revenues were slightly higher in the period but gross profit was lower and earnings per share was negative. So it's clear that we've improved the business from top to bottom. EBITDA is up. We reported a significant increase in adjusted EBITDA margin for the quarter from 24.4% last year to 32.1% this year. There's a lot of discipline behind those numbers starting with the revenue line.

Our rental revenues outperformed the operating environment in the second quarter. Total non-residential construction spending, which includes both private and public construction was down 16.1% in April year-over-year and down 15.2% in May. And you compare that to our rental revenues, which were down less than 1% for the quarter. At the same time, our same-store rental revenues were actually up 2.7%. So going hard after the business that's out there, implementing our market strategy, identifying and going after the right types of customers and winning more profitable jobs, but we're staying very aware of the quality of our revenues, not just the quantity. We'll talk more about our strategy in just a moment

Now on the cost side, we took $11 million of SG&A expense out of the business compared to the second quarter last year. We also brought down our cost of equipment rentals x depreciation by $4 million. Bill will talk in just a moment about where we are in these initiatives and what we see for the balance of the year. With CapEx, we've a lot of bandwidth to react to the market conditions. We bought $125 million of new fleet in the second quarter. We also sold $80 million of used OEC at 24.3% margin. And we ended the quarter with $3.8 billion of fleet with an average age of 45 months.

So we're very disciplined around the use of our capital and CapEx. At the same time, managing our liquidity very carefully and despite buying more fleet then we originally planned, still generated positive free cash flow of $8 million in the quarter.

Now I'll spend a few minutes to talk about the two dynamics that drive our numbers. Rental rates and utilization. As you saw, rates were down 2% in the quarter year-over-year. Still a lot of pressure on pricing out there but if you dissect the quarter, the sequential trends are promising. We are continuing to focus very intensely on rates. It's a huge priority for our business, and I would say for the industry as well.

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